Severn Trent to face prosecution from Serious Fraud Office

Tuesday, November 27, 2007

It has been announced that water supplier Severn Trent will face criminal charges after the Serious Fraud Office (SFO) judged that the evidence against the company was sufficient for it to answer allegations of three counts of providing false information to the sector regulator, Ofwat.

While no specific individual will face action, the company as a whole will face three counts relating to the provision of false leakage information to Ofwat in 2000, 2001 and 2002, such information being incorporated into the prices that water companies are ultimately allowed to levy on end users.

While Ofwat said that it viewed this development as "unprecedented", Severn Trent chief executive Tony Wray indicated that his company had cooperated fully with both the SFO and Ofwat during the course of their initial investigation, with the alleged reporting breaches occurring before the current management team took charge.

"We will now study carefully the details of the charges which relate to the responsibilities of a previous regime. Until that process is completed and we have taken legal advice, we cannot comment further on our response to the charges," Wray said in a statement, "What I can say is that this new Board and management team has taken, and will continue to take, all actions we think appropriate to ensure the maintenance of both high ethical and professional standards and resilient and effective controls throughout our organisation."

Ofwat's own investigation into this matter began more than three years ago after claims made by an ex-employee of Severn Trent, while the SFO's own probe began in October 2005 following a referral by the water regulator. Ofwat's investigation concluded in March 2006 - an outcome that led to an apology by Severn Trent to its customers and a return of more than £40 million to the company's 3.5 million customers with the regulator indicating that the company's leakage data "was either deliberately miscalculated or poorly supported" in its report on the
matter.

However, at the time Ofwat said that further financial penalties could be demanded depending upon the outcome of the SFO's investigation, an outcome that remains a distinct possibility given these latest developments. The timing of the legal case has yet to be agreed, with the SFO stating that a date for initial court hearings has yet to be set.

Courtesy of Energy Information Centre Ltd.

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